Ford (F) has announced this week that it is building a fully autonomous vehicle (AV). To anybody who is following what is happening in the auto industry that should come as no surprise; self-driving cars are, we are frequently told, the future. In market terms, consensus is often a dangerous thing, but in this case, Ford’s acceptance of the consensus view makes perfect sense, and their approach to the issue is preferable to that of their rival, GM (GM).
The case for automakers concentrating on autonomous vehicles is strong. The evidence so far suggests that they will be safer than person-operated vehicles and will be widely adopted once the regulatory and insurance framework catches up. That is no small issue as it must be made clear in law who, for example, would be at fault should an autonomous vehicle crash.
Would it be the “operator,” who would presumably be the owner sitting in the vehicle, or the manufacturer whose self-guidance system had failed? The resolution of such questions will not only determine when self-driving cars are fully adopted, but could also influence which model for their future turns out to be the best.
GM and Ford are approaching this from different angles. GM is working, through its subsidiary, Cruise Automation, to develop a fleet of vehicles that would form the basis of a shift in the company’s basic business model. Rather than sell them, GM aims to use the AVs to offer ride-sharing services, and foresees that becoming the focus of the company in the future.
Ford, on the other hand, is looking to stay as a producer and provide fleet vehicles to existing ride-share companies such as Uber and Lyft.
Should regulators and legislators decide that, as is the case now, the owner of a car is responsible for its operation and safety, that keeps Ford one step away from litigation should a problem arise. That is not, however, the only advantage of their business model. Staying as primarily a manufacturer may sound like the less dynamic of the two approaches, but it will turn out to be the best for one main reason: competition.
The AV market is already crowded, with Silicon Valley giants such as Google (GOOGL) and Apple (AAPL) developing their own, as well as Tesla (TSLA) and others. That will create an extremely competitive environment for manufacturers, so why add, as GM intends to do, another layer of intense competition by taking on the established ride-share companies and other entrants into that business?
I understand that when an industry is disrupted a positive reaction is essential, but reacting by inserting yourself into an extremely competitive market that you don’t know is going a step too far.
The plans for the timing of the two releases are also different, and once again Ford’s more cautious approach makes the most sense. GM has said that they aim to be in full production in a matter of “quarters, not years.” That sounds great, but Ford’s view, as expressed here, is that not only is the regulatory and legal framework not in place, but that our cities themselves need to be ready before AVs can fulfill their destiny. That is a logical position, and if correct, companies like GM will have spent a lot of money rushing to produce something for a market that doesn’t yet exist.
For investors, that is a very real risk. It raises the prospect of GM sitting on a white elephant, waiting for reality to catch up with their plans, just at the point when margins in their core business are coming under enormous pressure. Dynamism and grand plans are in many ways a welcome change at GM, where a “head in the sand” approach has had disastrous effects in the past, but their extreme enthusiasm here seems misplaced.
Ford’s attitude of preparing for the change without committing too far until some things are clearer makes more sense, which makes F a better long-term investment at this point than GM.